IFRS And GAAP Accounting Quiz: Test

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  • 1/86 Questions

    The cash conversion cycle is a measure of a company's liquidity

    • True
    • False
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About This Quiz

This IFRS and GAAP Accounting Quiz assesses knowledge on differences between IFRS and US GAAP, focusing on frameworks, financial reporting standards, and specific accounting treatments. Ideal for professionals and students in accounting to understand key distinctions and compliance requirements.

IFRS And GAAP Accounting Quiz: Test - Quiz

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  • 2. 

    What are the two main financial reporting standard-setting bodies?

    • IFRS and US GAAP

    • IASB and FASB

    • SEC and FSA

    Correct Answer
    A. IASB and FASB
    Explanation
    IFRS and GAAP are sets of actual accounting standards. SEC and FSA (Financial Services Authority, basically the UK's SEC) are regulatory authorities.

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  • 3. 

    Extraordinary items are not expected to continue in future periods.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Remember, they are only allowed under US GAAP, but even still, they are not expected to continue in future periods. It should be a one time thing.

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  • 4. 

    Under ******, the value of property and equipment and identifiable intangible assets can be revalued upward, but under ******* they cannot.

    • IFRS / US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. IFRS / US GAAP
    Explanation
    Under IFRS (International Financial Reporting Standards), the value of property and equipment and identifiable intangible assets can be revalued upward. This means that if the fair value of these assets increases, the company can choose to increase their carrying value on the balance sheet. On the other hand, under US GAAP (Generally Accepted Accounting Principles), revaluation of property and equipment and identifiable intangible assets is generally not allowed. This means that the carrying value of these assets will remain at their original cost, unless there is an impairment that requires a write-down.

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  • 5. 

    A Treasury Strip is a zero coupon security.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The strip is a zero-coupon security, so it has no cash flows to reinvest and therefore no reinvestment risk.

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  • 6. 

    Generally speaking, IFRS and US GAAP have similar accounting treatment of income taxes. However, while ******* prohibits upward revaluations, ******* allows upward revaluations and any resulting effects on deferred tax are recognized in equity.

    • IFRS / US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. US GAAP / IFRS
    Explanation
    US GAAP allows upward revaluations and any resulting effects on deferred tax are recognized in equity, while IFRS prohibits upward revaluations. This means that under US GAAP, if there is an increase in the value of an asset, it can be revalued upwards and any resulting effects on deferred tax will be recognized in equity. However, under IFRS, upward revaluations are not allowed, so any increase in the value of an asset will not impact the deferred tax and will not be recognized in equity.

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  • 7. 

    ***** is more rules-based. ***** is more principle-based.

    • IFRS / US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. US GAAP / IFRS
    Explanation
    For example, when an asset is leased both IFRS and US GAAP require the lessee to treat it as a finance lease if most of the ownership is being absorbed by the lessee. However, since US GAAP has a rules-based approach, there are specific criteria given to help determine this. IFRS is more subjective.

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  • 8. 

    A Treasury Strip is a zero-coupon security.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The strip is a zero-coupon security, so it has no cash flows to reinvest and therefore no reinvestment risk.

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  • 9. 

    Which body gives firms the option to revalue assets based on fair value under the revaluation model?

    • IFRS

    • US GAAP

    Correct Answer
    A. IFRS
    Explanation
    Under IFRS, assets may be revalued upward to fair value. Gains reversing previous writedowns are reported on the income statement, and any excess gains are taken as an adjustment to equity in an account called REVALUATION SURPLUS.

    Under US GAAP, long lived assets cannot be revalued upward, except that held-for-sale assets can be revalued upward to the extent of previous impairment writedowns.

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  • 10. 

    Held-for-trading securities are reported on the balance sheet at:

    • Fair value

    • Amortized cost

    • Unamortized cost

    Correct Answer
    A. Fair value
    Explanation
    Held-for-trading securities are reported on the balance sheet at FAIR VALUE and any unrealized gains and losses are recognized in the income statement.

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  • 11. 

    T, F, Chi-Square are examples of:

    • Parametric tests

    • Non-parametric tests

    Correct Answer
    A. Parametric tests
    Explanation
    these are all PARAMETRIC tests and make assumptions about the distribution.

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  • 12. 

    Under US GAAP, dividends received can be considered financing cash flows.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Under US GAAP, dividends received are OPERATING cash flows.

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  • 13. 

    IFRS does not allow extraordinary items but US GAAP does.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Under IFRS (International Financial Reporting Standards), the concept of extraordinary items has been eliminated. Extraordinary items refer to events or transactions that are both unusual and infrequent, and their inclusion in financial statements could distort the overall financial performance of a company. On the other hand, US GAAP (Generally Accepted Accounting Principles) still allows for the recognition of extraordinary items. This difference in treatment between IFRS and US GAAP regarding extraordinary items is why the statement "IFRS does not allow extraordinary items but US GAAP does" is true.

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  • 14. 

    Which body allows extraordinary items?

    • IFRS only

    • US GAAP only

    • Both

    Correct Answer
    A. US GAAP only
    Explanation
    IFRS DOES NOT ALLOW EXTRAORDINARY ITEMS Remember that Extraordinary Items (both unusual and infrequent) are reported below income from continuing operations, net of tax.

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  • 15. 

    Under *******, an asset is impaired when its carrying value exceeds the recoverable amount. The recoverable amount is the greater of fair value less selling costs and the value in use (PV of expected cash flows).

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. IFRS
    Explanation
    Under IFRS, the asset is impaired if its worth less than what the firm could sell it for less selling costs or worth less than the PV of its expected future cash flows (value-in-use).

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  • 16. 

    IFRS and US GAAP generally agree with their overall framework and purpose, but which body requires users to consider the framework in the absence of a specific standard?

    • US GAAP only

    • IFRS only

    • Both IFRS and US GAAP

    Correct Answer
    A. IFRS only
    Explanation
    IFRS requires users to consider the framework in the absence of a specific standard. This means that when there is no specific standard applicable to a particular situation, users of IFRS should refer to the overall framework to make accounting judgments and decisions. US GAAP, on the other hand, does not have a similar requirement. Therefore, the correct answer is IFRS only.

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  • 17. 

    Impairments can affect cash flow.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Asset impairments result in losses in the income statement, but they have NO IMPACT ON CASH FLOW since there is no tax or other cash flow effects until the asset is actually disposed of.

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  • 18. 

    ***** is a measure of interest rate sensitivity, expressed by the slope of the price-yield function. ***** is a measure of the degree of curvature of the price/yield relationship

    • Convexity / Duration

    • Duration / Convexity

    Correct Answer
    A. Duration / Convexity
    Explanation
    Think of it like this, convexity accounts for the error in the estimated change in a bond's price based on duration.

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  • 19. 

    Total assets / total equity

    • Current Ratio

    • Defensive Interval

    • Financial Leverage

    Correct Answer
    A. Financial Leverage
    Explanation
    Don't assume that just because sales or profit increased that it was a result of increased leverage.

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  • 20. 

    A company reporting under standards other than US GAAP that trade in US markets MUST reconcile their statements with US GAAP.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Companies reporting under standards other than US GAAP that trade in US markets must reconcile their financial statements with US GAAP. This is because US markets require companies to provide financial information that is consistent and comparable, and US GAAP is the standard used in the United States. Reconciling their statements ensures that investors and stakeholders have access to accurate and reliable financial information.

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  • 21. 

    Under both IFRS and US GAAP, research costs are expensed as incurred. But under which body are the development costs capitalized?

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. IFRS
    Explanation
    US GAAP requires both research AND development costs to be expensed as incurred. IFRS requires research costs to be expensed but development costs can be capitalized.

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  • 22. 

    Under IFRS, if an asset is impaired, it is written down to:

    • The recoverable amount

    • Fair value

    Correct Answer
    A. The recoverable amount
    Explanation
    Under IFRS (International Financial Reporting Standards), when an asset is impaired, it is written down to its recoverable amount. The recoverable amount refers to the higher of an asset's fair value less costs to sell and its value in use. This means that the asset is adjusted to its estimated future cash flows, taking into consideration the time value of money. Writing down the asset to its recoverable amount ensures that the carrying value of the asset on the balance sheet reflects its true economic value.

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  • 23. 

    The zero-volatility spread (aka Z-spread or static-spread) will equal the nominal spread when the yield curve is:

    • Upward sloping

    • Flat

    • Downward sloping

    Correct Answer
    A. Flat
    Explanation
    When the yield curve is flat, it means that the yields on different maturities of bonds are relatively similar. In this scenario, the zero-volatility spread (Z-spread) will equal the nominal spread. The Z-spread is the spread over the risk-free rate that compensates investors for the risk of a bond, while the nominal spread is the difference between the yield on a bond and the yield on a risk-free bond with the same maturity. When the yield curve is flat, the additional compensation for risk provided by the Z-spread is not necessary, so it equals the nominal spread.

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  • 24. 

    The ***** is a collection of business transactions sorted by account. The ***** is a collection of all business activities sorted by date. The ***** is a bookkeeping worksheet in which the balances of all ledgers are compiled into credit and debit columns. It shows account balances at a particular point in time.

    • General journal / general ledger / trial balance

    • General ledger / general journal / trial balance

    Correct Answer
    A. General ledger / general journal / trial balance
    Explanation
    Preparing a trial balance for a company serves to detect any mathematical errors that have occurred in the double-entry accounting system. Provided the total debits equal the total credits, the trial balance is considered to be balanced, and there should be no mathematical errors in the ledgers. However, this does not mean there are no errors in a company's accounting system. For example, transactions classified improperly or those simply missing from the system could still be material accounting errors that would not be detected by the trial balance procedure.

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  • 25. 

    Revenue/average total net assets

    • Return on assets

    • Total asset turnover

    • Fixed asset turnover

    Correct Answer
    A. Total asset turnover
    Explanation
    ROA=net income/assets

    fixed asset turnover=revenue/average net fixed assets

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  • 26. 

    In some cases, interest can be an investing or financing cash flow under US GAAP

    • True

    • False

    Correct Answer
    A. False
    Explanation
    under US GAAP, interest is ALWAYS an OPERATING cash flow.

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  • 27. 

    Available-for-sale securities are reported on the balance sheet at:

    • Fair value, but not reported on the income statement until sold

    • Fair value, and unrealized gains/losses are recognized on the income statement

    • Fair value, and any unrealized gains/losses are reported as other comprehensive income

    Correct Answer
    A. Fair value, and any unrealized gains/losses are reported as other comprehensive income
    Explanation
    Available-for-sale securities are reported on the balance sheet at fair value, which means their current market value. However, any unrealized gains or losses on these securities are not immediately recognized on the income statement. Instead, they are reported as other comprehensive income, which is a separate section on the financial statements. This treatment allows investors and analysts to see the true value of the securities on the balance sheet while also providing transparency regarding any changes in value that have not yet been realized through a sale.

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  • 28. 

    If a firm buys $100 million worth of materials in a year and on average their accounts payable is $25 million, what is their payables turnover ratio?

    • 0.25

    • 90 days

    • 4

    Correct Answer
    A. 4
    Explanation
    payables turnover=purchases/average trade payables

    remember that firms who are important to their suppliers will have a LOWER payables turnover because they don't need to be so prompt with making payments. They use it as a means of short term financing since they know vendors will tolerate it.

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  • 29. 

    Under *******, loss recoveries are permitted as long as they aren't above historical cost. Under *******, loss recoveries are not allowed for assets held-for-use.

    • IFRS / US GAAP

    • US GAAP / IFRS

    • US GAAP / neither body

    Correct Answer
    A. IFRS / US GAAP
    Explanation
    Under IFRS and US GAAP, loss recoveries are permitted as long as they aren't above historical cost. This means that if an asset's value decreases and then later increases back to its historical cost, the recovery of the loss can be recognized in financial statements. However, under IFRS and US GAAP, loss recoveries are not allowed for assets held-for-use. This means that if an asset is being used in the normal course of business, any loss recovery cannot be recognized in financial statements.

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  • 30. 

    Which method is used when the investor can control the investee? (greater than 50% ownership interest)

    • Consolidation Method

    • Equity Method

    • It depends on whether the firm uses IFRS or US GAAP

    Correct Answer
    A. Consolidation Method
    Explanation
    The correct answer is Consolidation Method. When an investor has greater than 50% ownership interest in an investee, they have control over the investee. In such cases, the Consolidation Method is used to account for the investment. This method involves combining the financial statements of the investor and the investee, as if they were one entity. It allows the investor to reflect their control over the investee and present a comprehensive view of the combined financials.

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  • 31. 

    Under *******, inventory is reported on the balance sheet at the lower of cost or net realizable value. Under *******, inventory is reported on the balance sheet at the lower of cost or market value. Inventory can be recovered subsequent to a writedown under *******

    • IFRS / US GAAP / IFRS OR US GAAP

    • US GAAP / IFRS / IFRS ONLY

    • IFRS / US GAAP / IFRS ONLY

    Correct Answer
    A. IFRS / US GAAP / IFRS ONLY
    Explanation
    Remember that when it comes to inventory, US GAAP tends to be more conservative.

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  • 32. 

    IFRS prohibits the use of the completed contract method and instead employs the cost recovery method.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    When the outcome of a project cannot be reliably estimated, IFRS requires the cost recovery method - revenue is recognized to the extent of contract costs and profit is only recognized at project completion.

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  • 33. 

    ****** are not traded in US markets ****** trade in local currencies on exchanges in different countries ***** is a negotiable certificate issued by a US bank representing a specified number of shares (or one share) in a foreign stock that is traded on a US exchange.

    • ADR's, global registered shares, GDR's

    • GDR's, global registered shares, ADR's

    • Global registered shares, GDR's, ADR's

    Correct Answer
    A. GDR's, global registered shares, ADR's
    Explanation
    Global Depository Receipts are not traded in US markets.

    Remember, ADR's are issued by a US bank and represent shares of a foreign stock. ADR's trade on US exchanges and are denominated in US dollars.

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  • 34. 

    Callable bonds have lower duration, and therefore less price volatility, than similar option free bonds.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Callable bonds have lower duration because they have an embedded call option, which allows the issuer to redeem the bond before its maturity date. This means that the bondholder may receive their principal earlier than expected, resulting in a shorter duration. As a result, callable bonds are less sensitive to changes in interest rates and have less price volatility compared to similar option-free bonds. Therefore, the statement is true.

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  • 35. 

    Under US GAAP, interest paid or received is what type of cash flow?

    • Operating

    • Investing

    • Financing

    • It depends on whether the interest is paid or received

    Correct Answer
    A. Operating
    Explanation
    regardless of whether it's interest paid or interest received, interest is classified as an OPERATING cash flow under US GAAP

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  • 36. 

    Under US GAAP, dividends paid are operating cash flows

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Under US GAAP, dividends paid are FINANCING cash flows!

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  • 37. 

    Under *******, an asset is impaired if its carrying value is greater than the asset's undiscounted future cash flows.

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. US GAAP
    Explanation
    Under US GAAP, an asset is impaired if its carrying value is greater than the asset's undiscounted future cash flows. This means that if the asset's value on the balance sheet is higher than the expected cash flows it will generate in the future, it is considered impaired. This impairment is recognized by reducing the carrying value of the asset and recording a loss on the income statement. This is in contrast to IFRS, where the impairment test is based on the asset's recoverable amount, which is the higher of its fair value less costs to sell and its value in use.

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  • 38. 

    Which method is used when the investor can significantly influence the investee? (between 20%-50% ownership interest)

    • Consolidation Method

    • Equity Method

    • It depends on whether the firm uses IFRS or US GAAP

    Correct Answer
    A. Equity Method
    Explanation
    The equity method is used when the investor can significantly influence the investee, typically with a 20%-50% ownership interest. This method allows the investor to account for its investment in the investee by recognizing its share of the investee's profits or losses in its own financial statements. It is commonly used when the investor has significant influence over the investee's operating and financial policies, but not control. The consolidation method, on the other hand, is used when the investor has control over the investee, typically with ownership interest of more than 50%. The choice between the two methods is not dependent on IFRS or US GAAP.

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  • 39. 

    In the case of business combinations with joint control, the proportionate consolidation method is preferred under ****** but the equity method is required under *******.

    • IFRS/ US GAAP

    • US GAAP / IFRS

    Correct Answer
    A. IFRS/ US GAAP
    Explanation
    Proportionate consolidation is NOT ALLOWED UNDER US GAAP

    IFRS prefers Proportionate Consolidation in this case, but the equity method could also be used.

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  • 40. 

    If over the course of a year a company has a total revenues of $64 million, $40 million total cost of goods sold, and an average inventory of $8 million, what is their inventory turnover ratio?

    • 3

    • 5

    • 8

    • 0.2

    • 0.167

    Correct Answer
    A. 5
    Explanation
    INVENTORY TURNOVER=COGS/AVERAGE INVENTORY
    or. SALES/INVENTORY

    Revenues are irrelevant. Remember that a low inventory turnover indicates poor sales and excess inventory. An inventory turnover ratio that's too high could indicate ineffective buying.

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  • 41. 

    Under US GAAP, dividends paid are

    • Operating Cash Flows

    • Investing Cash Flows

    • Financing Cash Flows

    • A or C

    Correct Answer
    A. Financing Cash Flows
    Explanation
    Under US GAAP, dividends PAID are FINANCING CASH FLOWS. Dividends received are operating cash flows.

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  • 42. 

    Under IFRS, dividends paid are reported as what type of cash flow?

    • Operating only

    • Financing only

    • Investing only

    • Operating or Financing

    • Operating or Investing

    • Financing or Investing

    Correct Answer
    A. Operating or Financing
    Explanation
    Under IFRS, dividends paid can be reported as either operating or financing cash flows

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  • 43. 

    Under IFRS, interest paid is reported as what type of cash flow?

    • Operating only

    • Financing only

    • Investing only

    • Operating or Financing

    • Operating or Investing

    • Financing or Investing

    Correct Answer
    A. Operating or Financing
    Explanation
    Under IFRS, interest paid can be reported as either operating or financing cash flows.

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  • 44. 

    Held-to-maturity securities are reported on the balance sheet at:

    • Fair value

    • Amortized cost

    • Unamortized cost

    Correct Answer
    A. Amortized cost
    Explanation
    Held-to-maturity securities are recognized on the balance sheet at AMORTIZED COST. Amortized cost is equal to the face (par) value less any unamortized discount or plus any unamortized premium.

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  • 45. 

    Which framework gives more emphasis on the importance of accrual and going concern assumptions?

    • FASB (US GAAP)

    • IASB (IFRS)

    Correct Answer
    A. IASB (IFRS)
    Explanation
    IASB framework gives more emphasis to the importance of the accrual and going concern assumptions than the FASB framework does.

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  • 46. 

    Under US GAAP, dividends received are

    • Operating Cash Flows

    • Investing Cash Flows

    • Financing Cash Flows

    • A or B

    Correct Answer
    A. Operating Cash Flows
    Explanation
    Under US GAAP, dividends PAID are financing cash flows. Dividends received are OPERATING cash flows.

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  • 47. 

    Which body uses UNDISCOUNTED cash flows to determine whether or not an asset is impaired?

    • IFRS

    • US GAAP

    • Both A and B

    Correct Answer
    A. US GAAP
    Explanation
    Under US GAAP, an asset is impaired if its carrying value is greater than the asset's UNDISCOUNTED future cash flows. If impaired, the asset is written down to fair value. Subsequent recoveries are not allowed for assets held-for-use.

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  • 48. 

    Under US GAAP, if an asset is impaired, it is written down to:

    • The recoverable amount

    • Fair value

    Correct Answer
    A. Fair value
    Explanation
    Under US GAAP, if an asset is impaired, it is written down to fair value. This means that the value of the impaired asset is adjusted to reflect its current market value. Fair value represents the price at which the asset could be sold in an orderly transaction between market participants. Writing down the asset to fair value ensures that the financial statements provide a more accurate representation of the asset's value, taking into consideration any decrease in its value due to impairment.

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  • 49. 

    When a firm reporting under US GAAP cannot reliably estimate the outcome of a project, it must use the:

    • Completed contract method

    • Cost recovery method

    Correct Answer
    A. Completed contract method
    Explanation
    When a firm reporting under US GAAP cannot reliably estimate the outcome of a project, it must use the completed contract method. This method recognizes revenue and expenses only when the project is completed, rather than recognizing them over the course of the project. This is because the firm cannot accurately determine the financial impact of the project until it is finished. By using the completed contract method, the firm can avoid making unreliable estimates and ensure that the financial statements reflect the actual outcome of the project.

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  • Mar 21, 2023
    Quiz Edited by
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    Jenningsc2
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